George Osborne Says British Bank Tax Is Here to Stay

LONDON — In 2010, Britain’s chancellor of the Exchequer, George Osborne, announced a bank levy, or tax on bank balance sheets, to force the industry to pay for the mess it had made.

Now he has made clear that the tax is not going away, even though the banking system has drastically decreased its risk profile through shrinking balance sheets and increased capital.

“I think the bank levy is going to be here to stay,” Mr. Osborne said at a parliamentary hearing on Tuesday when he was asked whether he would rescind the tax if the government balanced its budget.

It was another dose of bad news for the banks from Mr. Osborne, who increased the levy in his most recent budget to 0.21 percent of banks’ liabilities from 0.156 percent. A general election is scheduled for May, and the tax will help pay for government initiatives that are likely to be popular with voters, like tax breaks.

As might be expected, the tax increase had few fans in the City.

“It’s still perceived to be good politics to extract money from banks in a punitive way in spite of the fact that it is terrible economics,” said Richard Woolhouse, chief economist at the British Bankers Association.

The increase is hardly a surprise. The government has raised the bank levy nine times since it was first imposed in 2011, adding 5.3 billion pounds to the government’s coffers, according to the British Bankers Association. The Treasury estimates that the levy will contribute an additional £17.6 billion by 2018-19.

The tax applies to all banks and building societies operating in Britain. British banks are hit harder because they are taxed on their global balance sheets. Foreign banks with British operations like JPMorgan Chase and Goldman Sachs are taxed only on their British balance sheets.

Fallout from the tax, and additional regulations to force banks to separately capitalize and manage their retail and investment banking operations, has led some to question whether British-domiciled banks like HSBC and Standard Chartered, both of which have huge global operations, should stay in London. (Royal Bank of Scotland and the Lloyds Banking Group, which are both owned in part by the state, have mostly abandoned their global ambitions.)

HSBC has paid more than a quarter of the total bill, and Standard Chartered has to pay even though it has fairly limited operations in Britain, Mr. Woolhouse argued. “The bank levy disadvantages U.K.-domiciled global banks competing with people not paying it, and it acts as a deterrent for activities to move to London,” he said.

News reports have suggested that two big shareholders in Standard Chartered indicated they wanted the bank to consider moving its headquarters to Singapore or Hong Kong because of the tax burden.

But however unhappy the banks may be, they have little room to protest given the high level of anger that remains against all things banking in Britain.

Mr. Osborne seems to be capitalizing on that, even changing his rationale for the tax altogether. When introduced, Mr. Osborne said the tax was meant to reflect the risks that banks posed to the broader system.

But at the hearing on Tuesday, Mr. Osborne dropped the risk argument.

“I think the reason for the bank levy is both to create a safer financial system and also explicitly to raise revenue,” Mr. Osborne said matter-of-factly.

“I think it’s perfectly reasonable as a society to ask the banking sector to make a contribution,” he said. “It does receive all sorts of support from the government, even if we are of course trying to remove and reduce the implicit guarantee that used to exist.”